Creating a liquid and vibrant marketplace is already hard enough; fine tuning a business model, and eventually getting paid for the value that has been created by the marketplace is just as complicated and perilous. There has been a lot of talk on the “take rate” a marketplace business can eventually sustain and justify. In general, there is a direct and positive correlation between the strength of network effects achieved and the take rate that can be sustained, as well as a negative causation between initial take rate and subsequent network effects that can be realized. As a result, it is better to achieve network effects first before trying to optimize for maximum take rate/commission in a marketplace. (Note to VCs: don’t judge the revenue potential of a marketplace business based on its initial take rate.) In fact, at eBay it was common practice to launch a commission/fee free marketplace in a particular geography and wait for liquidity and network effects before imposing any type of fee structure on the business. Continue at PandoDaily. . . .
At some point in the life cycle of any successful company, it will have to abandon what made it successful in the first place. In the search for growth, the original customer, the initial wedge entry point, the early adopter will, by definition, will have to be left behind for the larger and more mainstream market opportunity. Today’s eBay looks vastly different than the eBay of the early 2000′s. Today’s eBay is dominated by discounted commodity goods or in-season products. Auction is no longer the main focus of the company. There is not a lot of trading, mostly just selling and buying. The level playing field is long gone (where small/individual sellers were given the same fees and the same visibility as a top sellers). The hard core collectibles enthusiasts (without beanie babies, there would not have been an eBay) still use eBay only because the lack of alternative, but the community that defined it in the past has evaporated. In the early days, eBay was a giant forum/message board with a marketplace attached to it (eBay’s message boards used to get as much traffic as its marketplace). Today, when people talked about the convergence of commerce, community, and content, they forget that eBay was the original user generated superstar.
But that playbook can only take the company so far as it had begun to saturate its initial market back in 2005. It took eBay almost 5 years (2006 – 2011) to pivot into the NEW eBay, a merchandizing and payments juggernaut capable of taking on Amazon. It was a long, hard, and gut wrenching turn around – eBay have to give up its first love in order to play with the big boys. It was the right decision combined with case study worthy execution. eBay is now growing and becoming relevant again – John Donohoe is an amazing operator and strategist. But to do so, eBay has left its billion dollar flank wide open for a new entrant to recreate the community and passion that had defined it in the first place.
Panjo had its public launch and funding announcement today. Spark Capital (of Twitter, Tumblr, and FourSquare fame) is leading the round because they believe in the vision and the the ultimate billion $ opportunity. In the vacuum that eBay has created, fragmented forums have taken its place as a place for enthusiasts and hobbyist to both talk about and trade with each other their passions. But that trading experience is still fragmented and sub-optimal – almost web 1.0 ish for the lack of a better term. As a result, Panjo is actively partnering with forums in order to go to where these interest based communities already are and leverage existing network effects where it exists. In almost 3 month since it started rolling out its solutions to partners, Panjo has achieved $500K in monthly GMV (marketplace speak for gross merchandize volume) – an almost unheard of ramp rate in the history of transactional marketplaces.
As a long time forum nerd (MBWorld, Watch U Seek, Bhuz), I’m excited to not have to spend days sending private messages back and forth, pulling up excel just to calculate paypal fees that sellers refuse to pay, emailing sellers to get an shipping tracking number, complaining to moderators when something goes bad . . . just to buy my favorite W208 aftermarket parts. As an investor – I’m looking forward to seeing the flywheel gain more momentum, Chad & Co execute to perfection as he has always done, and beating up Chad along with with Andrew Parker of Spark . . .
(This post is published @ Forbes.com I am just excerpting the first couple paragraphs on the blog)
It has taken a long time for the dust to settle from the battle for first generation e-commerce supremacy (Amazon.com and select smart brick and mortar guys won). Fifteen years later, a confluence of macro trends on and off the Web have created a tidal wave finally strong enough to birth a whole new generation of new e-commerce companies. Comparatively, in the same 15 years, the online photo market went through almost 4 generations of battles won and lost: Photobucket -> Flickr -> Facebook (->?) Instagram.
It took so long in e-commerce for several reasons:
- It took many years for offline retailers to bifurcate between those who embraced Web technologies and thrived and those who failed at doing so – thus opening up new verticals for disruption.
- New paid and social customer acquisition channels – Facebook, Twitter, Pinterest, celebrity endorsements.
- Amazon’s gigantic foot print has finally matured and slowed (transformation into a marketplace, SKU focused, free/fast shipping.)
- Skills sets that used to exist in very different fields but necessary to win in retail and e-tail has finally converged into the same “entrepreneur,” including online acquisition, merchandizing, user interface and supply chain management.